Wednesday, September 28, 2011

The "Shocking BBC Trader" Talks About Himself

The internet was all a flutter this week after seeing a frank speaking BBC Trader who said that he dreams of recessions and that the Goldman Sachs runs the world. If you missed it, here's the video:


 Now, he's appeared on CNN, check out the video here:


 CNN has a full article about Alessio Rastani.

Firstly, Rastani is an amateur trader using his own money (as a "hobby", he has told other media) and he's not registered with the Financial Services Authority to trade other people's money. He doesn't claim otherwise, but there was a feeling after his first interview that he was some sort of suit from the City or Wall Street giving sage advice to his clients.

He does or can have other clients though. His website calls him a speaker and trainer of others who want to trade.

In my interview, Rastani said he does trade being prepared for a recession, but that as a "human being you don't want it. As a trader you think differently. You're going to have volatile... conditions to make money in that market."

He also said he was a religious man. He was also clearly nervous about the whole affair and was undecided for an hour to whether he should actually sit on our set for the interview. He said no a few times, before we sat down.
"The question is, why are they paying attention to this?" he asked. "In my opinion somebody out there doesn't want my voice to be heard and they want to attack me and damage me."

He talked of the 'Big Boys' being desperate to keep people like him from talking about the coming economic storm.

He admits there may be a book in the works, but one that focuses on traders whom he admires.

When I asked him if he was for real, he said he would not say things about the markets he did not truly believe. When I asked him if he is a member of the so-called "Yes-Men" who have faked TV interviews in the past, he would not say yes or no. "Let people believe what they want to," he said.

Are Mutual Funds A Scam?

If you only know one thing about investing, you probably know about mutual funds. And there is a good reason for that. The financial industry makes billions selling and managing mutual funds, primarily because they charge high fees and deliver no value. This is especially true for actively managed funds where you pay high fees for the supposed skill and experience of a manger who buys and sells stocks in the that make up the fund. But, there are alternatives that the average investor can take advantage of, like index funds, and exchange traded funds. It just requires a little bit of work and knowledge.

It's all about the money, and high fees. Mutual fund companies take advantage of your ignorance about investing to make money for themselves. They give commissions to sales people ( or investment advisers as they are known ) to sell you their products. Then, every year, you pay the mutual fund company a percent in fees ( often 1.5-2.0%).

They justify these fees by saying that their funds are managed by experts who will help you outperform the market. The problem is that after the fees, their management decisions are worthless, as Forbes describes in an article:
Countless studies have shown that only a handful of managers can beat the market consistently in the long run. This is largely due to the weight of their fees, usually four times as much as those charged by index funds.
Imagine you invest $3,000 in a mutual fund that skims $30, or 1%, in annual fees. If the market grows by an annual average of 8%, your $3,000 will grow to $16,000 in 25 years. That sounds terrific but not compared with the $19,300 you'd have if you'd invested the same amount of money in an index fund that charges 0.25%. What's more, since active funds tend to buy and sell stocks far more frequently than index funds, they usually pass along far higher costs by way of commissions and tax bills.
To put it another way, you'd be paying over $2,000 over the quarter century, or two-thirds of your initial investment, just for the privilege of having your money managed by someone else. That's compared with $570 for an index fund. And that doesn't even factor in the extra profits you would have made in the index funds by investing the money not gobbled up in fees.
The mangers simply don't earn their fees, they deliver no value. So, if management is worthless, why should you pay for it? Well, you don't have too. Two alternatives exist index funds sold by mutual fund companies, and the second is exchange traded funds which are traded on stock exchanges.

An index fund simply track a stock market index, which is a collection of stocks. There are many different indexes that cover all regions of the world, and different industries. For example, the S&P 500 is a stock market index that tracks the 500 large public companies that trade on American exchanges. There are other indexes that cover specific countries like India and China, or industries like energy, and gold mines. Some mutual fund companies sell index funds, and their fees are much lower than the manged funds. For example Vanguard, has an S&P 500 fund that charges just 0.17% in fees. That can be the difference between making money or losing it.

Another alternative, is to buy Exchange Traded Funds, or ETF for short. ETFs are like index funds, but you don't buy them from a mutual fund company. Instead, you buy and sell them just as you would the stock in any company. The advantage of ETFs over index funds is that you don't have to pay a load-fee, which is just a commission, and can be 5% or even higher, instead you would pay a flat commission that would be from 0-$20. And the fees for ETFs are often even lower than index funds. For example the ETF equivilent to the Vanguard S&P 500 fund would be they SPDR S&P 500 which had fees of 0.0945% last year. The downside of ETFs is that you need an online brokerage account, which is a step that some simply aren't willing to take. You'll also have to take responsibility for understanding what you buy yourself. But, with a self directed retirement savings account you can take full advantage of tax savings and use your online brokerage account. Just as banks are willing to screw you over with mutual fund fees, they are also willing to help you say 'no' to high fees and no value by setting up a discount brokerage account for you. Because, it's all about the money, and if they cant' rip you off with mutual funds doesn't mean they want to lose you as a customer.

So, don't pay expensive fees and get nothing in return. Look into low cost index funds, or even ETFs if you feel you are ready to take the plunge.

Tuesday, September 27, 2011

Anonymous Correctly Predict The De-listing $1B Company

"Anonymous" has a new project called Anonymous Analytics, which recently predicted that a Hong Kong company, Chaoda Modern Agriculture holdingsstock would be desisted, and shortly there after it was.

From their report (pdf):
Anonymous Target: Delisting
Expected Return: ‐100%
"Anonymous" is a activist group that uses the internet to exert their influence, while keeping their identities hidden. Their stated goals are "access to information, free speech, and transparency".

They have created a website that which aims to "provide the public with investigative reports exposing corrupt companies." They claim that their staff includes "analysts, forensic accountants, staticians, computer experts, and lawyers from various jurisdictions and backgrounds."

The internet is obviously a powerful tool for dissemination information, but groups like "Anonymous" and Wikileaks are taking that idea even further. This is a tread to watch.

Monday, September 26, 2011

Marc Faber Says China is The Reason The Markets Are Down

In this recent video Marc Faber looks at the current weakness in the markets. He claims that we don't yet know the cause of slump in the stock market over the past 3 months. He says that market may be predicting a meaningful slowdown in China and that some sectors of the Chinese economy could collapse.

Faber also touches on that point in this MSNBC clip where he expect a significant slow down or a crash in China.

Tuesday, September 20, 2011

Jim Chanos Talks About China And Debt

Highlights: On the Chinese government's balance sheet: "The Chinese government's balance sheet directly does not have a lot of debt. The state-owned enterprises of the local governments and all the other ancillary borrowing vehicles have lots of debt and its growing at a very fast rate. The assumption is that the state stands behind all this debt. We see that the debt in China, implicitly backed by the Chinese government, probably has gone from about 100% of GDP to about 200% of GDP recently. Those are numbers that are staggering. Those are European kind of numbers if not worse." On how a Chinese property bubble will play out: "I think that will be the surprise going into this year, and into 2012 - that it is not so strong. The property market is hitting the wall right now and things are decelerating. The CEO of Komatsu said last week that he is having trouble getting paid for his excavator sales in China. Developers are being squeezed. They're turning to the black market for lending, this shadow banking system that is growing by leaps and bounds like everything in China. "Regulators over there are really trying to get their hands around the problem. In the meantime, local governments have every incentive to just keep the game going. So they will continue with these projects, continuing to borrow as the central government tries to rein it in." Chanos on his long and short positions: "We are short Chinese banks, the property developers, commodity companies that sell into China, anything related to property there is still a short." "We are long the Macau casinos. It's our long corruption, short property play. We feel that there's American management and American accounting. They are growing at a faster rate even than the property developers." On the IMF lowering growth estimates for China: "A lot of people are assuming that half of all new loans in China are going to go bad. In fact, the Chinese government even said that last year relating to the local governments. If we assume that China will grow total credit this year between 30% to 40% of GDP, and half of that debt will go bad, that is 15% to 20%. Say the recoveries on that are 50%. That means that China, on an after write off basis, may not be growing at all. It may be having to simply write off some of this stuff in the future so its 9% growth may be zero."

Tuesday, September 13, 2011

Europe In State Of Financial Collapse

CNBC has an article with hedge fund manager Julian Robertson where he discusses the problems in Europe which don't seem to end:
Robertson told Bartiromo "our political leadership is doing nothing to really help us get out of this current situation. Worldwide, Europe is just in a state of financial collapse." Bartiromo asked if he was expecting a default in Greece and Robertson replied, "Oh, yes." But default expectations do not stop there. Robertson believes there are real concerns for Portugal, even Italy as well.

Recently, I heard a long time investment adviser suggest shorting the Euro. He said that you rarely get a chance to be part of history, and shorting a soon to be disappearing currency is a rare chance.

 Bloomberg is reporting that "Italian Bonds Slide as Demand Falls at Five-Year Sale; Greek Debt Slumps".

Italy’s bonds fell, with two-year yields rising to the highest since before the European Central Bank began buying the nation’s debt last month, as concern the debt crisis is worsening sapped demand at a note sale today.
Greek two-year notes slid for a 10th day, pushing yields toward 77 percent, as credit-default swaps showed the nation has a 98 percent chance of default in the next five years. Italy sold 3.9 billion euros ($5.3 billion) of five-year notes at an average yield of 5.60 percent, up from 4.93 percent at the previous auction of similar-maturity debt in July. Demand dropped to 1.28 times the amount on offer, from 1.93 times.
The Financial Times reports that "Greek bond yields rise to unprecedented levels"

Greek bond markets have gone off the scale. As investor concerns over a potential debt default by Athens mount, the country’s debt has entered territory previously uncharted by a European sovereign.
Yields have risen by 150 percentage points on some bonds in the space of three months and volumes have slumped, almost to nothing on some days.
A trader at one big bank said: “Yield levels are unprecedented. Even other severely distressed sovereigns are not paying anything near the yield levels of Greece.”
Another trader added: “There are barely any trades on some days, so we have to make up the prices. As a primary dealer, we are under obligation to make a market and at least offer a price that we would buy and sell Greek debt.”

The old saying goes; "When they are crying, start buying", but the question is are there more tears to come? My feeling is that yes, there are more tears to come, and the market is going to head further down from here.

Yesterday's Late Rally A Bullish Sign?

Yesterday market was down significantly, until it rallied late in the day. On the surface this may seem positive for the markets, but Don Vialoux disagrees: 

Technical action by S&P 500 stocks was significantly bearish yesterday despite late “short covering” gains by the Index on rumors of intentions by China to buy Italian sovereign debt. No S&P 500 stocks broke resistance and 23 stocks broke support. The list of break downs is too long to include in this letter. Notable among stocks breaking support were Energy, Material and Transportation stocks. Charts on some are offered below. The Up/Down ratio was unchanged at (38/441=) 0.09
Technical action by TSX Composite stocks also was significantly bearish yesterday. No TSX stocks broke resistance and 18 stocks broke support. The list is too long to include in this report. Notable among stocks breaking support were Energy, Life Insurance, Uranium and Mining stocks. Charts on some are offered below. The Up/Down ratio eased from 0.34 to (58/180=) 0.32.
Read more here: 

Monday, September 5, 2011

Don Vialoux On BNN

Don Vialoux does great work combing techincal, seasonal and fundamental anlalysis of stocks. He was on BNN this Friday, September 2nd.

He sees more market weakness in September because of the following events that occur regularly in this month:

  • Analysts reducing their initially optimistic earnings estimates as the end of the year comes closer
  • Hurricane season causes disrutption in production and consupmtion of consumer staples.
  • A lag in consumer sales. Back to school shopping  happens in august, and Christmas starts after September, so there is a slowdown in consumer spending
  • The anniversary of 9/11. This has a negative effect on stocks, psychology and sentiment. And with Bin Laden being killed the perceived threat is greater this year.
Look for the bottom of the market on October 28 plus or minus 3 weeks (stay tuned for a more exact date as the date approaches). He also suggests natural gas using the exchange traded fund FCG.

Check out the videos for yourself: